Emerging markets, which had been outperforming their developed brethren in recent months, are now starting to underperform.

It appears to be an old-fashioned case of risk aversion. Stock markets are plunging (the FTSE 100 was down more than 300 points, or 5 percent just after noon in London, on Monday January 21st), commodity prices are dropping and investors are flocking to the safety of government bonds and currencies like the Swiss franc and yen. Speculative bonds now yield seven percentage points more than US Treasuries, the highest spread since April 2003.
As reported by Economist.com, for some, this merely represents a case of stock markets catching up with reality. It is now a year since the subprime crisis first emerged. In that time central banks have cut interest rates, investment banks have announced big write-offs and various rescue packages have been suggested. But the end of the crisis is not yet in sight.
Indeed, another leg of the debt crisis may be under way, if problems of monoline debt-insurers (an obscure but important bunch who guarantee the timely repayment of bond principal and interest when the issuer defaults) are not contained. If the American economy is not now in recession, it is close enough not to make a practical difference to sentiment.
For much of past year equity investors knew those salient facts but chose instead to take comfort from three more bullish factors. First was that the Federal Reserve would rescue both the markets and the economy, as it has done so often before. Second, even if the American economy faltered, the rest of the world (particularly Asia) could take up the burden of producing global growth. Third, given the global picture, corporate profits could stay high.
All three assumptions are now coming under question. Although the Fed may cut rates this month, it can take 12-18 months for the effects of monetary policy to boost the economy. On the issue of decoupling, it is not clear that either Europe or Japan can escape America’s gravitational pull.
The latest data on Singapore (slowing exports and a decline in fourth-quarter GDP) suggest that other parts of Asia might not escape either. It is significant that emerging markets, which had been outperforming their developed brethren in recent months, are now starting to underperform.
On Monday Hong Kong suffered its worst loss since September 11th 2001. As they review the evidence of decoupling analysts are cutting their profit forecasts.
An indication of the change in sentiment came when America’s administration announced plans for a fiscal stimulus on Friday. In good times, that would have kick-started a market rally; in the current mood, the package was seen as a sign of desperation.
Share prices have now fallen far enough that European indices are in bear market territory having dropped 20 percent from their peaks. Indices for smaller stocks in Britain have fallen by a similar amount. However, it takes more than just a big percentage fall for a bear market to be officially under way; the decline also needs to be long-lasting.
The markets have had short-term 20 percent declines in the past only to rebound quickly. Indeed, what was remarkable about the long Bull Run from March 2003 to June 2007 was that it occurred without any such corrections.
Share prices have fallen so far and so fast that an attempt at a rally seems almost inevitable. What may determine if this is a correction or a bear market is whether that rally can be sustained for more than a day or two.

Norway's large offshore oil and gas-extracting sector, along with its energy-intensive aluminum and ferro-alloy industries, are significant contributors to the country's CO2 emissions.

The Norwegian government has unveiled an ambitious target for reducing greenhouse gas emissions, with the aim of making Norway a carbon-neutral country by 2030. However, achieving a substantial cut in domestic emissions will not be easy, implying the government may need to look further afield, reported AP.
Norway’s Labour-led coalition government has reached a compromise agreement with the main opposition parties that foresees the country becoming carbon neutral by 2030-20 years earlier than its previously stated goal of 2050.
The cornerstone of the agreement is a planned reduction in annual greenhouse gas emissions of 15-17 million tons of carbon dioxide (CO2) equivalents by 2020-Norway emitted around 54m tons of CO2 equivalent in 2006.

Carrot and Stick
In order to meet this target the government has indicated it will adopt a “carrot-and-stick“ approach to encourage more environmentally-friendly behavior and reduce emissions.
According to finance minister Kristin Halvorsen, “considerable“ funds will be allocated towards efforts to promote renewable energy sources, strengthen public transport and implement measures aimed at reducing emissions from the transport sector.
An increase in fuel taxes will raise the already sky-high prices for petrol and diesel, while the government also plans to present a separate action plan for switching heating in public buildings from fossil fuels to renewable energy sources.
One-fifth of the planned reduction in annual emissions (3 million tons) is expected to be achieved through carbon absorption by Norway’s forests, which act as a sink for CO2. Overall, the agreement calls for around two-thirds of the total reduction in the country’s emissions to be made nationally, with the remainder to be achieved through the trading of emissions quotas and through investment in “clean“ energy projects abroad, as allowed under the existing Kyoto Protocol.

Green Credentials
Environmental policy has emerged as a key focus of the government, with the three coalition parties--the Labour Party, Socialist Left Party (SV) and Center Party--all seeking to strengthen their support ahead of next year’s general election.
As the world’s fifth-largest oil exporter and the biggest exporter of natural gas in Western Europe, Norway is aware of its environmental responsibilities in helping to combat the threat of climate change.
While it has a good record on renewables, with most of its electricity generated by hydropower, Norway’s large offshore oil and gas-extracting sector, along with its energy-intensive aluminum and ferro-alloy products industries, are significant contributors to the country’s CO2 emissions.
With the Center Party and particularly the SV having performed less than impressively in local elections last year, the two smaller parties in the coalition have been keen to burnish their “green“ credentials.

Looking Abroad
The new agreement reached by Norway’s political parties outlines an ambitious long-term climate change policy, although it remains to be seen to what extent the proposed CO2 reductions can be achieved from measures taken within Norway, and how much will come from activities abroad.
The oil and energy minister, Aslaug Haga, acknowledged after the announcement that “we don’t know how we will achieve the goals yet“, while environmental groups have questioned the government’s ability to meet the high expectations it has generated.
With Norway already covering the bulk of its household energy needs through hydropower, most of the proposed reduction in domestic CO2 emissions will need to be made elsewhere. Particular focus is likely to fall on the transport sector.

On product coverage, the EU wants all agricultural products to be covered by the SSM mechanism, but African and ACP exporters want to limit the SSM to a much smaller number of products.

African negotiators are concerned that their development concerns have been sidelined in the much vaunted Doha Development Round of negotiations at the World Trade Organisation (WTO). Whether the round, which has missed previous deadlines, will be concluded this year or not depends on several issues.
All of these are about the power tussle between rich and poor countries over countries’ prerogative to use national policies to safeguard development.
On the process of the negotiations, African delegations are fearful that they might be completely marginalized from what could possibly be the closing phase of negotiations this year.
Referring to the WTO General Council session on December 18, an African negotiator remarked, “In every other developing country statement, the message to (WTO Director General) Pascal Lamy was that he should not take the revised texts from the chairpersons (of the negotiations) straight to the Green Room.“ The Green Room refers to closed door negotiations held among a limited number of delegations, Ipsnews.net reported.
There are also concerns regarding the issue of rural livelihoods. Import surges, as a result of liberalization, have wreaked havoc and destroyed thousands of farm jobs across the developing world. G33 countries have specifically asked for a mechanism, the special safeguard mechanism (SSM), which would allow developing country members to raise their tariffs in response to these surges.
The G33 is a group of developing countries organized around the issue of rural livelihoods and food security.
One G33 negotiator said, “We are completely stuck on the SSM. There is no agreement on a whole range of issues“.
On product coverage, proponents want all agricultural products to be covered by the mechanism, but exporting members want to limit the SSM to a much smaller number of products. On how the SSM can be triggered, proponents have been told that a much higher import volume is needed before they can avail of the SSM.
On the remedy, G33 members want to be able to go beyond the Uruguay Round bound tariff rate, but are also facing opposition there. This rate refers to the maximum tariff rate that countries can charge on imports, rates which they legally bound themselves to in the Uruguay Round of negotiations which were concluded in 1994.
The G33 negotiator added, “The chairperson (of the agriculture negotiations) also wants us to check whether or not consumers are benefiting from lower prices. If they are, the SSM should not be triggered. He also wants to limit the number of times the SSM can be invoked.“
“There are layers and layers of restrictions being introduced in the SSM negotiations. At the end of the day, the mechanism will not be effective. These discussions are going the wrong way,“ is his conclusion.
Regarding the NAMA negotiations, South Africa’s representative Faizel Ismail made a statement on behalf of the NAMA 11 at the last meeting of the General Council last year.
The statement was aimed at averting another draft text that disregards their position. The NAMA 11 is a coalition of 10 developing
countries.

It’s good and bad that the issue of sovereign wealth funds (SWF) has entered the US presidential debate. What’s positive is that the candidates have the chance to educate the American electorate during a moment of mounting economic gloom--and while people are paying attention--about the increased role that foreign capital plays in creating US jobs and growth.
According to Bloomberg.com, while they are at it, the candidates might also tell voters that without SWF investments of almost $70 billion in financial institutions over the past few weeks the banking crisis, stock market retreat and risk of recession would be much worse.
Unfortunately, the bad side of SWFs entering the electoral debate is more likely: a further spread of ill-informed, protectionist populism that wins votes and boosts television ratings, but doesn’t wake up Americans to the greater danger that these funds might shun US markets.
For the uninitiated, SWFs, of which there are about 40, are giant pools of capital controlled by governments and invested in private markets.
For all the attention they get, they are just one of four sovereign investment sources that include international currency reserves, state-owned enterprises and public-pension funds.
It’s their growth curve that has won global attention, and they are poised to quadruple in value from $3 trillion now to $12 trillion by 2015, equal to the capitalization of the Standard & Poor’s 500 Index.
Morgan Stanley predicts the funds will have assets of $28 trillion by 2022, more than double the size of the US economy today. That ensures their investment decisions will move markets and shape the financial system.